Health Savings Accounts / Flexible Spending Accounts and High Deductible Health Plans

This will be a continuation of the general overview post concerning the basics of health insurance.

The vast majority of our patients do not have or know what Health Savings Accounts (HSA), or Flexible Spending Accounts (FSA) are. So, in this post I will do my best to help clarify what these accounts are, why you need one and you do need one, like now. No, really, you need one, now… And how easy they are to set up and maintain year after year.

Let’s start by talking about taxes, yes taxes. You know there are only 2 things in life that are definite, death and taxes. Yes, those taxes. Those of us that are blessed enough to have gainful employment have an income. An earned income if you will. This is subject to United States tax law. I will not get into international tax laws as that is just ridiculous ;) So, as a law-abiding citizen you file a tax return at the end of the fiscal year and the government removes money from your possession. This removal process can be on a check by check / payday by payday basis or quarterly or yearly depending on your situation. Either way you will be parting with your hard-earned cash. After the removal process you will have post-tax dollars, before the removal process those dollars are referred to as pre-tax dollars. If you are smart, which you are. Come on, give yourself some credit. I mean I’m sure your mother always told you how smart you are. Well, she meant it. So, since you are smart you need to limit, or reduce your taxable income. Another way of putting it is reducing your pre-tax dollars. There are thousands of ways to accomplish this and a good CPA will gladly do it for you. Please get a CPA, they will only save you money.

Ok, now back to the HSA / FSA subject. These accounts are funded by pre-tax dollars and effectively lessen / reduce your taxable income. This is why you need one now!

The basic gist of an HSA / FSA account is that you are using pre-tax dollars to pay for out-of-pocket health related or doctor approved costs. A few examples are. 

• co-pays
• co-insurances
• deductibles
• prescriptions
• procedures
• durable medical equipment (DME)
• certain vitamins / supplements and so on

Let’s start with the FSA as these are not as common these days (2021) and have fallen out of favor a bit compared to the HSA.

The FSA is usually an arrangement through your employer that lets you pay for many out-of-pocket medical expenses with tax-free dollars. Allowed expenses include insurance copayments and deductibles, qualified prescription drugs, insulin, and medical devices to name a few.

You decide how much to put in an FSA, up to a limit set by your employer. You are not taxed on this money as you would be funding this account with pre-tax dollars.

If money is left at the end of the year, the employer can offer one of two options (not both):

• You get 2.5 more months to spend the left-over money.
• You can carry over up to $500 to spend the next plan year.

To my knowledge FSA accounts do not bear interest / cannot be invested.

So basically, you can lose what you do not spend, or most people just go on a spending spree at the end of each year because they do not want to lose money. But this is just wasteful. And the money you have funded the account with does not earn interest nor can it be invested. These are the downsides of the FSA and why they have fallen out of favor in general.

Now, HSA accounts have much more flexibility and are favored by most people.

HSA accounts and high deductible health plans (HDHPs) go hand in hand. You can take advantage of lower premium costs associated with a higher deductible plan but then use the HSA account to pay for out-of-pocket health related costs that are with pre-tax dollars. The left-over money in the account can roll over year after year. Depending on who you set the account up with / through the account will bear interest or can be an investment vehicle.

You will need to find out if your health plan qualifies for you to open an HSA account and then search for providers to be able to open the account. Some are through banks, maybe the bank you already use. Some are stand-alone companies that provide this service.

Here is where it gets tricky. Good HSA accounts are free. Most have fees associated with them. So be careful. Please make sure you read everything before you sign up. That being said, mistakes do happen, and you can always close an account and open a new one. I had to actually do this for myself before I found a good company. Give me a break, no one is perfect… just ask my wife, she will tell you.

You will want to have the account include features like a debit / credit type card that you would use. This way money would come directly out of the HSA account and you would not have to keep track of every penny as the year goes on.

There will be limitations on how much you can fund these accounts each year, but most financial planning experts agree that funding the maximum amount each year is advantageous to the average person.

This may sound overwhelming at first, but it really is not. Basically, call your bank and see what they offer. Do a thorough internet search for companies that offer these types of accounts or speak with your employer. Find a good CPA and have them help you with your taxes each year. Involve your financial planning professional if you have one, and once you pick out an account have your CPA tell you the optimal amount you should be funding each year and you are off on your savings adventure.

If you have any questions or need further clarification, please give the clinic a call. We at North Florida Spine and Injury Center would be glad to help you out.

Thank you
Dr. Adam Zeccardi DC, FIAMA